Microsoft's Android patents will face challenges

With over 20 patent licensing deals with Android mobile device makers, Microsoft's most profitable mobile operating system is Android. That revenue stream may soon be shrinking.

Now that the Chinese government has revealed the patents within Microsoft's Android patent portfolio, Microsoft may soon be facing challenges from vendors over its Android patent licensing agreements.

The Android patents alone may bring as much as $2 billion a year to Microsoft's coffers. 

As John Ferrell, co-founder of the Silicon Valley law firm Carr & Ferrell, said in an e-mail interview: "It’s not unexpected that a company like Microsoft, that invests so heavily in building and acquiring patents, wouldn’t also aggressively find a way to monetize its huge investment."

Microsoft has certainly done that. 

Microsoft's licensing fees vary from company to company. While no one has gone on record, the range seems to be from $5 to $16 per Android device. So, for example, Microsoft signed Samsung to an Android patent deal in 2011. Thus, with Samsung's Galaxy S5, which is available at a carrier-subsidized price of $200, Microsoft may be making from $10 to $32 per device sold.

Android smartphone and tablets manufacturers aren't happy about this. I've been speaking to half-a-dozen Android related businesses and these companies are considering a variety of options now that Microsoft's Android patent arsenal [.docx file] has been publicly revealed. As these companies are still weighing what, if any, actions they make take, I am unable to identify them or what specific actions they are currently considering.

Here, however, are the possibilities that are under consideration.

Of the major Android smartphone vendors, only Motorola Mobility, which previously belonged to Google, and is being bought out by Lenovo, has fought Microsoft in court over its demands for Android patent licensing. The other firms, considering the high-cost of patent litigation, have been elected to pay Microsoft off. The average cost of a patent lawsuit in 2008 had already reached $17.8-million per case.

For most companies the smart move has been to swallow their pride, pay the licensing fees, and move on. 

Motorola Mobility, however, has shown that Microsoft patent portfolio was weaker than many expected. Of the 17 patents to appear so far before the International Trade Commission, the US District Court of Western Washington, and the German Federal Patent Court, 16 of the decisions have gone Motorola's way.

The only Microsoft-owned Android patent to be upheld to date has been US Patent No. 6,370,566 for ActiveSync.

As a result of Motorola Mobility's relative success, and the Chinese patent revelations, some firms are re-considering their Microsoft patent licenses. One in-house counsel for a major Asian firm said that, after checking the full list and taking out duplicates, they found multiple invalid and expired patents, and standard essential patents covered by fair, reasonable, and non-discriminatory terms (FRAND). Once those were taken out, by this firm's count, Microsoft only had 80 relevant patents. The company also believes that many of these — if someone were to file for a reexamination of them — might be invalidated.

Another firm is considering suing Microsoft over the current terms of its patent license. Still, another corporate attorney suggested that the mere threats of either litigation or seeking to have the patents invalidated might be enough to get Microsoft to reduce the costs of its patent licenses. While it's unlikely that a company would seek to have any of Microsoft's patents invalidated at the US Patent and Trademark Office (PTO), pro-open source and anti-patent groups may seek to do exactly that. 

For companies however, when all is said and done, patents are all about money.

Rather than spend millions in litigation (which as the Apple vs. Samsung saga has shown has no real-world market effect) if the Android companies can use the Microsoft Android patent revelations to strike a more profitable deal for themselves, they'll be happy to do so. 

Related stories:

• 310 Microsoft patents used in Android licensing agreements revealed by Chinese gov
• Five reasons Microsoft could become a top Android smartphone company
• Microsoft is making $2bn a year on Android licensing - five times more than Windows Phone
• Microsoft's most profitable mobile operating system: Android
• Microsoft FAT patent loss endangers its Android revenue